B. THE CONSTITUTION OF TRUSTS

Milroy v Lord

Constitution= refers to the giving or transfer of legal title from one person to another

1. Trust property must be vested in trustee

A trust will be properly constituted when

Settlor has vested the legal title to the trust property in the trustees

Or he declares that he now holds property as trustee

Either: (a) Settlor wishes to be trustee:

Of property already in his hand, the court must be satisfied that the subject matter of the trust is clearly identified and segregated from their other assets. A present binding declaration of trust has been made complying with the requisite formalities.

Declaration need not be literal, what is necessary is some form of expression which in the circumstances shows that he intended to constitute himself trustee and another person beneficiary even if he didn’t know that the obligation he was creating amounted to a trust.

OR

(b) Settlor wishes another to be trustee.

Should comply with all formality requirements governing transfers of the relevant type of property.

(a) Inter vivos transfers of legal interests

Three examples:

Land- s52(1) must be made by deed, s1 of LMPA tells us of the requirements of a deed

Chattels- by deed or by an intention to make a gift AND delivery (Re Corp)

Shares in a private company- Companies Act 2006

LPA 1925, ss 52, 136

If the subject matter of the trust is legal title to land, then conveyance to trustees must take form of a deed.

If registered land then the transfer must be entered into Land Register – LA 20002 ss29 annd 30

Copyright Act 1988, s 90(3)

Must be done by writing

Bills of Exchange Act 1882

Legal title of chattels must be transferred by delivery or by deed of a gift, a bill of exchange must be transferred by endorsement.

Companies Act 2006, Pt 21

Law of Property (Miscellaneous Provisions) Act 1989, s 2

(b) Equity will not assist a volunteer

Mere recipient of property who doesn’t give consideration= no justification

Once a trust is completely set up validly, the fact that a beneficiary gives no value is irrelevant. Unless the settlor expressly reserves a power to revoke the trust at the time when he created it, the settlor can’t undo a completely constituted trust or revoke it on the basis that the beneficiaries are merely volunteers.

But if the trust hasn’t been completely constituted the position is different:

Milroy v Lord (1862) 4 De GF & J 264 (HM 231)

Facts: a deed created purported to transfer 50 shares in a railway company to Lord(L) to hold on trust for Milroy(M). Transferwas meantto be carried out through an agent, noreregistration of any transfer hadhappended= M had no rights to the shares. M tried to argue thatthe intention of the transfer to L ought to mean that the current ownerought to be considered trustee of the shares.

Held: ineffective gift doesn’t constitute a declaration of trust without there being clear intention to create a trust in this way (Re Rose challenges this)

No matter how clear there may have been an intention to create a voluntary trust by transferring property to trustees, if the intendingsettlor has an ineffectual method of transfer, then transactionwill not be reinterpreted by court as an effectual declaration of trust withsettlor as trustee

Turner LJ- in order to render a voluntary settlement valid and effectual, settlor must have done everything necessary to transfer the property and render the settlement binding on him

When does this not count:

Pullan v Koe

A person isn’t a volunteer if they provide value or can bring themselves within a marriage consideration, equity will help by treating settlor as having done that which ought to have been done and impose a constructive trust.

An intended beneficiary who ISN’T a volunteer can enforce settlor’s promise because he simply doesn’t fall under scope of the rule.

Richards v Delbridge (1874) LR 18 Eq 11

Facts: Delbridge was a tenant of premises from which he carried out business. He was assisted by his grandson Richards, a minor. Shortly before his death, he endorsed and signed the following memorandum on the lease: ‘This deed and all thereto belonging I give to Edward Bennetto Richards, from this time forth, with all the stock-in-trade.’ He then gave the document to the boy’s mother to hold for him. On his death there was no mention of property.

Held: there was no effective transfer of the lease because it wasn’t under seal (requirement no longer exists). Moreover there was no declaration of a trust.

Jessell- for a man to make himself trustee, there must be an expression of intention to become a trustee.

(c) Exceptions to the rule that Equity will not assist a volunteer

Proprietary estoppel(don’t need to know)

Rule in Re Rose

Rule in Strong v Bird

Doctrine of donation mortis causa

(i) The rule in Re Rose

Re Rose [1952] Ch 499

Facts: A wanted to transfer shares to B, A take out a form and signs it in B’s favor and gives it to the company’s registrar, but surprise surprise A dies before the company registers B as the new owner, does so after A has died. So when did B become owner of the shares?

CoA: equity sees as done that which ought to be done

Principle: Applying this maxim: once A has done everything in his power to give their property away, effect = A holds as trustee for B on a constructive trust until Bis registered. So the courts will intervene and remedy the actions of a donor who has done everything within their own power necessary to transfer the gift, even if actsto be performed by third-parties have not yet been completed.

Correct method of transfer must be used- this case related to shares= so stock transfer form was correct

Documents must end up in the right place- in this case documents went to the company registrar.

Re Fry [1946] 1 Ch 312,

Similar type of facts, but consent needed to be received and transferor died before this consent was ever received. Court said doesn’t count because such consent may never have been given.

Mascall v Mascall (1984) 50 P & CR 119

Watered down Re Rose

Facts: father wanted to transfer legal title to son, father filled in all relevant documents and gave them to the son, the son hadn’t logged the documents with the land registry. They fall out and father says give them back, son says nolets go to court.

Father used correct method, did everything in his power BUT the documents didn’t end up in the right place.

CoA: the rule in Re Rose still applies because the father was now unable to revoke the documents- the son had them and he couldn’t do anything to interfere

Pennington v Waine [2002] 1 WLR 2075 (HM 232)

Relaxes the rules mentioned so far even more- watered down requirement in a sad way. Terrible case. She was an old lady= maybe sympathetic interpretation of the facts.

Facts: Mrs Crampton, a shareholder in a private company, told Pennington, a partner in a firm who acted for the company, that she wished to transfer some of her shares to her nephew. She wanted him to be director and company rules say you can only be a director if you owned shares. She later signs a share transfer form to this effect and gave it to Pennington who was the company accountant (NOT the company registrar). Pennington was supposed to give it to registrar, but he just files the files away and does nothing. Pennington told the nephew there’s nothing else you need to do, you can be director now. Pennington took no further action

Issue: Harold (the nephew) took on the role of director at her death, but had the shares been transferred to him?

Under a constructive trust he wasn’t a beneficiary as Mrs C hadn’t done everything in her power to transfer the power, Pennington was only acting as an agent, she never told the registrar

CoA: yes the shareshad been transferred. But reasoning differs in the two main judgements:

Arden LJ: upheld Re Rose, and held that the fact that there was clear evidence that Mrs C intended an immediate gift of the shares amounted toan assignment of them to the nephew anyway. On the facts it would be unconscionable in view of all that she had done to transfer the shares to then turn around and change her mind and say that they were not his.

Either the settlor must have put it out of his power to stop the transfer proceeding, or else circumstances akin to proprietary estoppel must make it unconscionable for him to insist on ownership of the relevant property

(but cf Zeital v Kaye [2010] EWCA Civ 159)

Principle applied to an attempted transfer of beneficial interest in shares where on the facts transferor hadn’t done everything in his power.

Pennington should be confined to its facts i.e. cases that are similar

So what are the material facts ofPennington- no clear answer

One suggestion: where A, or their agents make a representation or statement to B and B relies on this detrimentally= a constructive trust will arise

Sounds like proprietary estoppel, is this what Arden LJ was basically doing?

T Choithram International SA v Pagarani [2000] 1 WLR 1

Facts: Pagarani dying from illness executed trust deed establishing foundation that would act as an umbrella for four charities of which he had established. Immediately after signing, he stated that all his wealth, including shares in a number of companies would now belong to the trust, he himself was one of the trustees. He told his accountant to transfer all his money to the trust but failed to assign the necessary forms, and to duly register the trustees of the foundation as shareholders in the companies in which he held shares. After Pagarani dies his family claim he hadn’t effectively transferred his wealth to the foundation, so it accordingly belonged to them.

Privy council: the trust was properly constituted and decision rests on two points:

Pagarani had made a declaration of trust- didn’t use the word trust and his actual words seemed to indicate a gift but the context of the words clearly indicated a trust- he intended to give to the foundation

It didn’t matter that the trust property wasn’t vested in the other trustees as Pagarani had executed a solemn declaration of trust and it would be unconscionable to allow him to go back on his promise.

(ii) The rule in Strong v Bird

Originally case applied in case of creditor and debtor

Strong v Bird (1874) LR 18 Eq 315

Facts: creditor owed money by debtor. Creditor appoints debtor as executor = debtor takes legal title of the estate, debtor hasn’t repaid the money but gets title of C’s estate because he’s executor= rule debtor is to be released from the debt= it’s a rule about forgiving debts.

Rules:

A mustn’t change his mind (Re Gonin)

B must be executor or one of the executors of A’s estate (Re Stewart)

An executor is chosen by testator inference= A intends for B to get the property. A’s intention in making B executor justifies the gift.

Common law treats the appointment as extinguishing or releasing the debt- in this case court of equity decided common law should prevail= executor didn’t have to account for the debt

What is traditionally known as the rule in Strong v Bird has now developed into the principle that:

An imperfect immediate gift of specific existing real or personal property will be perfected if the intended donee is appointed the testator’s executor or administrator alone, or with other so long as the intention to make the gift continues until the testator’s death.

Rule: if an incomplete giftis made during the donor’s lifetime and the donor appointed thedonee his executor, then the vesting of property in thedonee completes the gift

Re James: extended the rule to administrators

Re Stewart [1908] 2 Ch 251

Strong v Bird extended by Neville LJ

Negatively left the situation as it was at law, since he positively treated the gift as effective though the law did not, so perfecting an imperfect gift made by the testator in his lifetime to his wife who was one of his appointed executors. He said:

Where a testator expressed the intention to make a gift of personal estate to one who upon his death becomes his executor, the intention continuing unchanged, the executoris entitled to hold the property for his own benefit because:

Vesting of the property in the executor at the testator’s death completes the incomplete gift made in his lifetime

The intention of the testator to give the beneficial interest to the executor is sufficient to countervail the equity of beneficiaries under will

This case has been followed many times at first instance and treated as good law by CoA.

Re James [1935] Ch 449

This case extended Stewart

Farwell LJ: housekeeper by the fact that she was appointed as one of the administrators had the right to the property when the donor died intestacy, as equity didn’t need to step in and perfect her title.

e. the rule in Strong v Bird will apply even if B is the administrator of A’s estate, this is problematic however.

A doesn’t choose B, the court does.

It’s a rule based on intention. But Re James says that if fortuitous by luck of draw B is chosen= gift passes.

Re Gonin [1979] Ch 16

Extension to administrators in Re Stewart doubted in this case, in obiter by Walton J and rejected by the British Virgin Islands’ CoA in Re Pagarani.

After all it is the voluntary act of the testator in appointing his debtor as his executor that extinguishes the debt at law, so that the fortuitous appointment by the court of an administrator who was a debtor of the intestate didn’t extinguish the debt. And so Strong v Bird would’ve been differently decided if the D had been an administrator and not an executor.

However the reasoning of Neville J suggests that, what, perhaps, should more aptly known as the rule in Re Stewart is only concerned with the acquisition of legal title like the tabula in naufragio ‘plank in the shipwreck’ doctrine. This doctrine confers priority upon later equitable interests whose owners somehow manage to obtain the legal estate

Walton- reluctant to follow Re Gonin

Whether or not the rule in Strong v Bird can be extended to the constitution of trusts:

Re Brooks’s ST [1939] 1 Ch 993

Facts: mother creates trust makes Lloyds Bank trustee for her son. Trust is such that from time to time, mom can add property to the trust. The son sets up a separate trust naming the same bank as trustee for his own family (wife and kids), and feeling very generous he makes an enforceable promise to voluntarily transfer any property that he receive from mom in his own trust, to the trust he created for his family, automatically.

Issue: Mom did give lots of property, question arose, since the trustees were the same could we say that the moment mom gave property to Lloyds, the property was automatically constituted to the other trust?

Justice Farwell: no you cant because the only person that can constitute a trust is settlor himself, so until and unless the son puts it on trust the property was the son’s absolutely.

Principle: if A intending to make a gift of the beneficial interest to C, fails to comply with formality requirements = he can’t be forced to make good on his previous intention by perfecting his imperfect gift.

What if A dies?

Re Ralli’s WT [1964] 1 Ch 288

Bad Case

Facts: father creates trust naming a set of trustees for two beneficiaries M and H. M takes for life and H for remainder. H promises to assign what she had to a different set of trustees on trust for some other beneficiaries. H died, then M died- M only has a life interest so that interest terminates and although H is dead it should go to H’s estate. There was a coincidence that the trustees all died as well (H’s) and there was only one person surviving.

Barclays J: obiter-if he were asked the question we could say the rule in Bird applied but Re Brooks wasn’t cited by him

Principle: where the imperfect gift is to trustees and one or more of them is appointed the donor’s executor, this should perfect the trust, the quity of the beneficiaries under the intended trust of the property being sufficient to countervail the equity of the testamentary residuary beneficiaries.

(iii) Donationes mortis causa (in outline)

Death bed gifts:

Essential requirements for DMC to apply:

The donor must have made the gift in contemplation though not necessarily in expectation of death

He must have delivered the subject matter of the gift to the donee or transferred to him the means or part of the means of getting at the subject matter. E.g. delivering a key, like car key, or a key to a box containing essential indicia of title, intending to part with dominion over the property to which the key relates

The circumstances must have been such as to establish that the gift was to be absolute and complete only on the donor’s death so as to be revocable before then. A condition to this effect need not be expressed and will normally be implied from the fact that the gift was made when the donor was ill.

Kane v Moon

A gift made in contemplation of death- if I die you get my property and if I don’t die you don’t get it, if that person delivers that property to the other person e.g. delivering deeds, keys to a safety box etc= if the person actually dies then the gift is constituted and if he doesn’t die then the gift goes back to him.